CLASSIFYING PROPERTY - CAPITALIZED PROPERTY - 8602
Property is capitalized for accounting purposes when certain conditions are met. Capitalization means to record the property in the accounting records as capital assets if they meet predetermined criteria, commonly known as the capitalization threshold.
Agencies/Departments will capitalize the asset/property that meets the capitalization threshold at the time of acquisition. Agencies/Departments will retain acquisition source documents to maintain a satisfactory system of internal control as required by the State Leadership Accountability Act. See Government Code sections 13400-13407.
Tangible and intangible capital assets must meet the following three requirements to be capitalized:
- Have an expected useful life of greater than one year.
- The purchase cost or internally generated cost of each individual unit must meet the capitalization threshold of $5,000 or more (e.g., four identical assets which cost $3,000 each, for a $12,000 total, would not meet the requirement).
- Are used to conduct state business.
Capitalized costs include the purchase price or construction cost and the related costs incurred that are necessary to place the asset in its intended location and in a condition where it is ready for use. Related costs will depend on the nature of the asset acquired or constructed. See SAM Sections 8610.1 –8615.3.
When the above three requirements are not met, the property will be recorded as an expenditure and not a capital asset in the general ledger. See SAM Section 8603, Non-Capitalized Property.
Right-to-Use Lease Assets
Right-to-use lease assets must meet the following three requirements to be capitalized:
- Right-to-use lease contracts with $100,000 or more in total future lease payments over the lease term.
- Have a lease term greater than 12 months.
- The underlying tangible capital asset for financed purchases will retain the current capitalization threshold of $5,000 per unit.
For a description of right-to-use-lease assets, see SAM Section 8615.4.